Definition
The term nonbank bank refers to financial institutions that provide some banking services, but do not offer both demand deposits and commercial loans. Nonbank banks do not meet all of the operating requirements outlined in the Bank Holding Company Act of 1956 to be classified as a bank.
Explanation
Bank holding companies may establish operations classified as nonbank banks. These are financial institutions that provide banking services such as lending and credit cards. They can also offer FDIC insurance on deposits. However, they do not offer both demand deposits and commercial loans, which allow them to avoid certain restrictions, or regulatory oversight, placed on institutions classified as a bank.
A bank holding company might establish a network of nonbank banks for a number of reasons, including:
Accepting deposits as a way of financing new activities.
Expanding their geographic operating footprint.
Creating a new channel to sell additional products and services.
Aligning their operations with those they compete against in the financial industry.
